Richard Drew/AP
Retail stocks helped push U.S. stock markets lower again Friday, a day after the biggest one-day drop in nearly two months, as evidence mounted showing consumers are becoming more cautious. Blue chip stocks had their worst week of the year.

Other retailers have disappointed investors with second-quarter earnings. From Walmart (WMT) and Gap (GPS) to Macy's (M) and McDonald's (MCD), chains that cater to middle- and lower-income Americans are feeling the pinch of an uneven economic recovery.

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The retail industry is a closely watched part of the U.S. economy as consumer spending makes up roughly 70 percent of economic activity. The disappointing outlooks are worrisome because they take into account the back-to-school shopping season, typically the second-biggest shopping period for U.S. retailers.

Adding to the market's concern, a preliminary reading on consumer sentiment for August slipped from July's six-year high, according to a University of Michigan survey.

One bright spot was homebuilding stocks, which rallied after the Commerce Department reported housing starts rose 5.9 percent in July, compared with a 9.9 percent drop in June. Pulte Group and Lennar were among the top percentage gainers in the S&P 500. PulteGroup (PHM) rose 2.4 percent to $16.29 and Lennar (LEN) gained 1.9 to $33.91. But rival D.R. Horton (DHI) fell 0.7 percent.

Green Mountain Coffee Roasters (GMCR) shares rose 3.4 percent to $76.41 after Nasdaq OMX Group (NDAQ) said the company will replace Life Technologies (LIFE) in the Nasdaq 100 index on Aug. 22.

Pandora Media (P) shares jumped 2.4 percent to $20.33 following a bullish call on the stock from Goldman Sachs (GS).

J.C. Penney (JCP) shares fell 3 percent to $13.41 as the retailer entered into an agreement with former board member and largest shareholder Bill Ackman, paving the way for him to sell his stake.

Shares of Applied Materials (AMAT) rose 1.9 percent to $15.62, even though the chip-making equipment company's earnings and outlook fell short of Wall Street estimates as analysts focused on its long-term outlook.